How to Open a New Pharmacy

Opening an Independent Pharmacy from scratch is a challenging process. From choosing your location to forming a business entity, there’s much consider. In this article, we break down the steps you should follow when starting a Pharmacy, and provide you with information on the costs of opening a Pharmacy both legally and efficiently.

1. Choose a Location for Your Independent Pharmacy

Opening a Pharmacy begins with choosing the right location. You must consider factors including the location of your competitors, accessibility, parking availability, and the economic state of your trading area.

To begin, conduct a Pharmacy Feasibility Study, or site audit. Our Professional Site Feasibility Report evaluates the relevant market data to help you decide if you’re starting a Pharmacy in the right location – here’s how it works.

First, we gather as much information as possible on the area and competitors’ performance o determine if a new Pharmacy will be successful at the proposed location. Then, we run a closer analysis to determine some financial projections to better inform your decision-making. By investing some time and money at the outset, you are doing everything possible to ensure the success of your new Pharmacy venture.

You may be tempted to rely on the number of scripts written by physicians in the area to determine the right location for starting a Pharmacy. However, the majority of customers use Pharmacies located close to where they shop and live. Often physicians, especially specialists, draw patients from outside the community, and they’re unlikely to become your customers.

Rather than focusing solely on the number of local scripts written, focus instead on: 

• the geographical trade area
• the population demographics within the trade area

Accurate demographics, considered alongside the average cost per script and the number of scripts filled per age range in that trade area, makes it possible to accurately formulate the amount of total prescription revenue available. Once you calculate this figure, you can then project how much of that revenue the Independent Pharmacy can reasonably expect to capture.

“Captured revenue” comes down to the number and type of competitors. Opening an Independent Pharmacy means convincing customers to switch from their current Pharmacy. How likely is that to happen? Usually, it is much harder to compete with another independent than it is with a major chain like a CVS or Rite Aid. Supermarket Pharmacies are tough competitors, because they have the advantage of the one-stop-shopping concept, which appeals to consumers. 

Next, consider what the location itself offers. What can you offer to differentiate yourself from the existing competition? Note anything that impedes access to your Pharmacy, too, such as interstates, rivers, or natural terrain.

Once you build a complete picture of the trade area with the estimate of patients captured during the first two years, you can create realistic financial projections.

Project the amount of revenue, estimated gross profits, expenses, and if there’s a net operating profit or loss.  With exceptions, most new Independent Pharmacies will operate at a loss for about 12-24 months before reaching a breakeven point.

2. Create a Business Plan

Before obtaining a start-up Pharmacy loan, you need a solid Pharmacy business plan. A good Pharmacy business plan should include:

•  a mission statement
• an executive summary
• the services provided
• a location analysis
• profit projections

The costs of opening a Pharmacy vary, but include a full breakdown of costs and how much capital will be needed for construction, inventory, equipment, technology, employees, marketing, and operating expenses after opening to reach a breakeven point.

When you’re writing a business plan, less is generally better. Keep it concise and include any relevant, more detailed data supporting the opening of a Pharmacy as attachments. Remember, lenders only want to know how they’re getting their money back, so extraneous details are unnecessary. The experts at PRS Pharmacy Services can help you determine what to include in your plan.

3. Arrange Your Financing

Apply for a loan by presenting the business plan to lending institutions. A solid plan shows the bank that your proposed Independent Pharmacy is a sound investment, but be prepared to answer whatever follow-up questions your lender asks, including questions concerning your personal finances and Pharmacy management experience.

There are a few Pharmacy – specific banks that offer loans to start-up Pharmacies. These banks have experience in the Pharmacy sector and understand the loan process for a start-up Pharmacy better than most community banks. A typical start-up Pharmacy loan will be between $500,000-$700,000, and require a down payment of 20% cash. As stated earlier, most start-up Pharmacies will not break even point until 12-24 months post-opening, so starting a new Independent Pharmacy means having sufficient capital to cover costs and operating expenses until this point.

4. Set Up the Business Entity

Any new business needs to obtain a Federal Employer Identification Number (FEIN) through the IRS to operate and hire employees. In addition, whether you do it yourself or hire a firm, you must create a business entity, such as an LLC with S Corp tax designation to protect your personal assets from potential liabilities. Most business attorneys can assist with this process and guide you in the right direction.

5. Choose Your Wholesaler or Buying Group

Choosing a wholesaler is important, and Pharmacies need to do their homework and select the right partner for their business. Carefully consider what each wholesaler has to offer and how that fits into your Pharmacy’s business plan and objectives.

In almost all cases, it may be more beneficial to join a Pharmacy buying group. The buying group takes the total book of business for all its member Pharmacies combined to negotiate pricing and services with wholesalers and other vendors. When Pharmacies combine their purchase volume, they get the wholesalers to fight for their business, rather than the other way around, which gives them the power to demand a better deal. They also provide other benefits such as a generic drug program, return policy, and services to help run the Pharmacy more efficiently. Services provided vary per group, so select the one that best fits programs the Pharmacy plans on offering.

6. Implement Your Technology

When you’re opening up a Pharmacy, technology is vital. The basic technology you will need includes operating software, POS, printers and scanners, and internet and phone services. However, your technology shouldn’t stop there. 

To run a Pharmacy efficiently, you need a system capable of supporting your backend processes such as workflow management, inventory control, financial reporting, and patient support services. This technology must be seamlessly implemented to improve your service offerings and streamline your day-to-day processes to increase profitability. Speak to your team, get a sense of what services they need to improve their efficiency, and schedule some demos from software providers. 

Technological tools are a necessary cost of opening a Pharmacy. If you’re unsure how to choose the right technology solution for your business, consult a professional familiar with Pharmacy systems for advice. 

7. Understand the Legal Protocols and Procedures Involved

Opening an Independent Pharmacy  is a challenging process, especially given the number of state and federal laws and regulations you must follow. You must allow adequate time to fulfill your licensing and contracting obligations – otherwise, you’ll incur unnecessary expenses and difficulties.

• If you underestimate the time it takes to license your Pharmacy, you will suffer delays in opening.
• If you’re unaware of how long it takes to complete your PBM contracts, you will let customers down because you can’t handle their prescriptions, which means you’ll lose revenue.
• By underestimating how long it will take to open your Pharmacy, you could face various cash flow problems which disrupt your revenue potential.
• Finally, it’s very frustrating if you can’t open when planned because you haven’t completed your licensing requirements.

Third Party Payers

Upon receipt of the federal and state licenses and the NCPDP number, you can now enroll in the PBM/third party contracts.

Part of the enrollment process is to find a Pharmacy Services Administration Organization (PSAO). Most buying groups or major wholesalers offer this service. This is a must to obtain the majority of third party enrollments in addition to negotiating reimbursements from payers as part of a large Pharmacy network.

Reach out to a PSAO while evaluating wholesalers to begin the application process. Enrollment can be finalized once the licenses are obtained. Please note that the following PBM’s are not included in any PSAO enrollment programs: Caremark, Cigna, Humana, Express Scripts, Optum Rx, State Medicaid, and Medicare Part B. It will be your responsibility to reach out to each PBM, request an application or enroll online and follow up for approval.

Allow approximately four months to complete enrollment for the non-PSAO plans.

Certificate of Liability Insurance

PBM’s will require a copy of this certificate in the amount of $1 million per incident/$3 million aggregate to be attached to the PBM application.

Surety Bond

You’ll need a $50,000 surety bond to enroll

in Medicare. Some private insurance prescription benefit programs will also require this bond.

The following enrollments can be found under the National Supplier Clearinghouse (NSC) website:

• Medicare Part B for drugs and biologics (855S)
• Medicare Part B for immunizations (855b)
• Medicare Part B DMEPOS will require accreditation

Medicaid is state- specific and, in some states, it could take between six and 9 months to enroll.

You can establish a timeline, and plan your opening date, as you work through the various protocols and licensing requirements.

8. Meet Your Compliance Requirements

Compliance and Credentialing will play a big part in opening an Independent Pharmacy.

Ensure you understand which laws, contractual requirements, and procedures apply to your Pharmacy, such as:

• General State Board Compliance
• DEA Controlled Drug Compliance
• State Controlled Drug Reporting
• HIPAA
• Medicare Part D Fraud, Waste, And Abuse
• Medicare Part D Compliance Program
• USP 795 (Non-Sterile Compounding)
• USP 797 (Sterile Compounding)
• USP 800 (Handling of Hazardous Drugs)
• Third-Party Pharmacy Credentialing

• OSHA Hazardous Communication Standard
• OSHA Exposure Control Plan for Bloodborne Pathogens
• State Point of Care Testing for CLIA Waived Testing
• Drug Supply Chain Security Act
• Non-Discrimination (Section 1557 of the ACA)
• HR Requirements

How to Open an Independent Pharmacy

Starting a Pharmacy or opening an Independent Pharmacy is a complex process, requiring a significant investment in time, money, and resources. If this is your first Pharmacy and you’re unsure how to start a Pharmacy business, strongly consider hiring an experienced professional to assist you.

A Pharmacy Consultant with years of experience in opening Independent Pharmacies is a worthwhile investment in your success – so long as you choose a knowledgeable Consultant. Many so-called Pharmacy Consultants lack the knowledge or expertise to guide you effectively through the process.

Why You Should Choose PRS to Help With Opening an Independent Pharmacy

Starting a Pharmacy is a big undertaking, and even the smallest mistake can wreak havoc on your opening plans. To ensure a smooth Pharmacy opening and to maximize your ROI, you need the right team on your side. 

PRS is the ONLY Pharmacy ownership consultant endorsed by NCPA, the Federation of Pharmacy Networks and over twenty buying groups representing more than 15,000 Independent Pharmacies. Why are we endorsed? Our vast experience in a variety of unique situations make us the BRAND name in Pharmacy Consulting, compliance, and brokerage. To date, PRS has sold, transferred, or opened over 500 Independent Pharmacies across all 50 states, and we are fully insured, licensed, and accredited.

If you choose PRS to show you how to start a Pharmacy business, you’ll work directly with one of our licensed Pharmacists. With over 20 years’ worth of experience, this Pharmacist will be your dedicated Project Manager, and they’ll help you every step of the way to make this stressful and complex process manageable.